Item 2. Management’s Discussion and Analysis
ITEM 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included
elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2024.
Unless the context indicates otherwise, references in this management’s discussion and analysis to “we,” “our,” and “us,” refer
to Bank7 Corp. and its consolidated subsidiaries. All references to “the Bank” refer to Bank7, our wholly owned subsidiary.
General
We are Bank7 Corp., a bank holding company headquartered in Oklahoma City, Oklahoma. Through our wholly-owned subsidiary, Bank7, we operate twelve locations in Oklahoma, the Dallas/Fort Worth, Texas
metropolitan area and Kansas. We are focused on serving business owners and entrepreneurs by delivering fast, consistent and well-designed loan and deposit products to meet their financing needs. We intend to grow organically by selectively
opening additional branches in our target markets and pursuing strategic acquisitions.
As a bank holding company, we generate most of our revenue from interest income on loans and from short-term investments. The primary source of
funding for our loans and short-term investments are deposits held by our subsidiary, Bank7. We measure our performance by our return on average equity, earnings per share, capital ratios, efficiency ratio (calculated by dividing noninterest
expense by the sum of net interest income on a tax equivalent basis) and noninterest income.
Q3 2025 Overview
We reported total loans of $1.53 billion as of September 30, 2025, an increase of $96.7 million, or 6.7%, from September 30, 2024. Total deposits were $1.64 billion
as of September 30, 2025, an increase of $112.6 million, or 7.4%, as compared to September 30, 2024.
Pre-tax net income was $14.2 million, a decrease of $1.3 million, or 8.5%, for the three months ended September 30, 2025 as compared to pre-tax net income of $15.5
million for the same period in 2024. Pre-tax net income was $42.6 million, a decrease of $3.0 million, or 6.6%, for the nine months ended September 30, 2025 as compared to pre-tax net income of $45.6 million
for the same period in 2024.
Return on average assets and return on average equity was 2.33% and 18.11%, respectively for the three months ended September 30, 2025, as compared to 2.73% and 23.67%, respectively, for the same period in
2024. Return on average assets and return on average equity was 2.41% and 18.96%, respectively for the nine months ended September 30, 2025, as compared to 2.68% and 24.79%, respectively, for the same period in 2024. Our efficiency ratio for
the three months ended September 30, 2025 was 41.12% as compared to 37.87% for the same period in 2024. Our efficiency ratio for the nine months ended September 30, 2025 was 39.94% as compared to 37.58% for the same period in 2024.
The provision for credit losses for the three months ended September 30, 2025 increased $0.7 million, or 100.0%, as compared to the same period in 2024. The provision for credit losses for the nine months
ended September 30, 2025 increased $0.7 million, or 100.0%, as compared to the same period in 2024. The provision expense for the three and nine months ended September 30, 2025 was related to loan growth in the third quarter of 2025.
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Table of Contents
Results of Operations
Net Interest Income and Net Interest Margin. The following table presents, for the periods indicated, information about: (i) weighted average balances, the total dollar
amount of interest income from interest-earning assets, and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities, and the resultant average rates; (iii) net interest
income; and (iv) the net interest margin.
Net Interest Margin
For the Three Months Ended September 30,
2025
2024
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
(Dollars in thousands)
Interest-earning assets:
Short-term investments
$
228,755
$
2,477
4.30
%
$
191,583
$
2,325
4.81
%
Debt securities, taxable
45,853
266
2.30
51,172
303
2.35
Debt securities, tax exempt (1)
11,972
60
1.99
16,889
69
1.62
Loans held for sale
1,780
-
-
250
-
-
Total loans (2)
1,512,147
30,914
8.11
1,418,512
30,791
8.61
Total interest-earning assets
1,800,507
$
33,717
7.43
1,678,406
$
33,488
7.92
Noninterest-earning assets
42,578
40,002
Total assets
$
1,843,085
$
1,718,408
Funding sources:
Interest-bearing liabilities:
Deposits:
Transaction accounts
$
1,040,322
$
8,388
3.20
%
$
922,117
$
9,237
3.97
%
Time deposits
233,433
2,303
3.91
253,640
3,034
4.75
Total interest-bearing deposits
1,273,755
10,691
3.33
1,175,757
12,271
4.14
Total interest-bearing liabilities
1,273,755
10,691
3.33
1,175,757
12,271
4.14
Noninterest-bearing liabilities:
Noninterest-bearing deposits
320,238
332,487
Other noninterest-bearing liabilities
11,501
12,221
Total noninterest-bearing liabilities
331,739
344,708
Shareholders' equity
237,591
197,943
Total liabilities and shareholders' equity
$
1,843,085
$
1,718,408
Net interest income
$
23,026
$
21,217
Net interest spread
4.10
%
3.78
%
Net interest margin
5.07
%
5.02
%
(1)
Taxable-equivalent yield of 2.60% as of September 30, 2025, applying a 23.6% effective tax rate.
(2)
Average loan balances include monthly average nonaccrual loans of $5.4 million and $7.4 million as of September 30, 2025 and September 30, 2024,
respectively, are included in loans.
For the third quarter of 2025 compared to the third quarter of 2024:
-
Interest income on total loans totaled $30.9 million, an increase of $123,000 or 0.4%;
-
Yields on our interest-earning assets totaled 7.43%, a decrease of 49 basis points which was primarily attributable to lower loan yields of 50 basis points, and a decrease in yield on short-term investments of 51 basis points; and
-
Net interest margin was 5.07% compared to 5.02%.
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Table of Contents
Net Interest Margin
For the Nine Months Ended September 30,
2025
2024
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
(Dollars in thousands)
Interest-earning assets:
Short-term investments
$
238,118
$
7,721
4.34
%
$
180,426
$
6,896
5.09
%
Debt securities, taxable
47,248
827
2.34
103,507
2,266
2.92
Debt securities, tax exempt (1)
12,327
187
2.03
17,468
214
1.63
Loans held for sale
1,453
-
-
281
-
-
Total loans (2)
1,453,557
87,207
8.02
1,381,200
89,834
8.66
Total interest-earning assets
1,752,703
$
95,942
7.32
1,682,882
$
99,210
7.85
Noninterest-earning assets
41,871
39,499
Total assets
$
1,794,574
$
1,722,381
Funding sources:
Interest-bearing liabilities:
Deposits:
Transaction accounts
$
1,001,583
$
23,182
3.09
%
$
872,635
$
25,726
3.93
%
Time deposits
235,278
7,152
4.06
255,348
9,026
4.71
Total interest-bearing deposits
1,236,861
30,334
3.28
1,127,983
34,752
4.10
Total interest-bearing liabilities
1,236,861
30,334
3.28
1,127,983
34,752
4.10
Noninterest-bearing liabilities:
Noninterest-bearing deposits
319,346
395,822
Other noninterest-bearing liabilities
10,657
12,219
Total noninterest-bearing liabilities
330,003
408,041
Shareholders' equity
227,710
186,357
Total liabilities and shareholders' equity
$
1,794,574
$
1,722,381
Net interest income
$
65,608
$
64,458
Net interest spread
4.04
%
3.75
%
Net interest margin
5.00
%
5.10
%
(1)
Taxable-equivalent yield of 2.68% as of September 30, 2025, applying a 24.2% effective tax rate.
(2)
Average loan balances include monthly average nonaccrual loans of $5.9 million and $13.9 million as of September 30, 2025 and September 30, 2024,
respectively, are included in loans.
For the first nine months of 2025 compared to the same period in 2024:
-
Interest income on total loans totaled $87.2 million, a decrease of $2.6 million or 2.9%, due to decreased loan yields as discussed below;
-
Yields on our interest-earning assets totaled 7.32%, a decrease of 53 basis points which was primarily attributable to lower loan yields of 64
basis points, and a decrease in yield on taxable debt securities of 58 basis points; and
-
Net interest margin was 5.00% compared to 5.10%.
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Table of Contents
Increases and decreases in interest income and interest expense result from changes in average balances, or volume, of interest-earning assets and interest-bearing liabilities, as well as changes in average
interest rates. The following tables set forth the effects of changing rates and volumes on our net interest income during the period shown. Information is provided with respect to (i) effects on interest income attributable to changes in
volume (change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume).
Analysis of Changes in Interest Income and Expenses
For the Three Months Ended
September 30, 2025 vs 2024
Change due to:
Volume (1)
Rate (1)
Interest
Variance
(Dollars in thousands)
Increase (decrease) in interest income:
Short-term investments
$
451
$
(299
)
$
152
Debt securities
(52
)
6
(46
)
Total loans
2,032
(1,909
)
123
Total increase (decrease) in interest income
2,431
(2,202
)
229
Increase (decrease) in interest expense:
Deposits:
Transaction accounts
1,183
(2,032
)
(849
)
Time deposits
(242
)
(489
)
(731
)
Total interest-bearing deposits
941
(2,521
)
(1,580
)
Total increase (decrease) in interest expense
941
(2,521
)
(1,580
)
Increase (Decrease) in net interest income
$
1,490
$
319
$
1,809
Analysis of Changes in Interest Income and Expenses
For the Nine Months Ended
September 30, 2025 vs 2024
Change due to:
Volume (1)
Rate (1)
Interest
Variance
(Dollars in thousands)
Increase (decrease) in interest income:
Short-term investments
$
2,196
$
(1,371
)
$
825
Debt securities
(1,292
)
(174
)
(1,466
)
Total loans
4,687
(7,314
)
(2,627
)
Total increase (decrease) in interest income
5,591
(8,859
)
(3,268
)
Increase (decrease) in interest expense:
Deposits:
Transaction accounts
3,790
(6,334
)
(2,544
)
Time deposits
(707
)
(1,167
)
(1,874
)
Total interest-bearing deposits
3,083
(7,501
)
(4,418
)
Total increase (decrease) in interest expense
3,083
(7,501
)
(4,418
)
Increase (Decrease) in net interest income
$
2,508
$
(1,358
)
$
1,150
(1)
Variances attributable to both volume and rate are allocated on a consistent basis between rate and volume based on the absolute value of the variances in each category.
38
Table of Contents
Securities
Our investment portfolio consists entirely of securities classified as available-for-sale. As a result, the carrying values of our investment securities are adjusted for unrealized gain or loss, and any gain or
loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.
We evaluate our available-for-sale securities portfolio on a quarterly basis for potential credit-related losses. We assess potential credit losses by comparing the fair value of a debt security to its
amortized cost basis. If the fair value of a debt security is greater than the amortized cost basis, no allowance for credit losses is recognized. If the fair value is less than the amortized cost basis, we review the factors to determine if
the impairment is credit-related or noncredit-related. For debt securities we intend to sell or are more likely than not required to sell, before the recovery of their amortized cost basis, the difference between fair value and amortized
cost is impaired and is recognized through earnings. For debt securities we do not intend to sell or are more likely than not required to sell, prior to expected recovery of amortized cost basis, the credit portion of the impairment is
recognized through earnings, with a corresponding entry to an allowance for credit losses, and the noncredit portion is recognized through accumulated other comprehensive income.
The following table summarizes the maturity distribution schedule with corresponding weighted average taxable equivalent yields of the debt securities portfolio at
September 30, 2025. The following table presents securities at their expected maturities, which may differ from contractual maturities. The Company manages its debt securities portfolio for liquidity, as a tool to execute its asset/liability
management strategy, and for pledging requirements for public funds:
As of September 30, 2025
After One Year But
After Five Years But
Within One Year
Within Five Years
Within Ten Years
After Ten Years
Total
Amount
Yield *
Amount
Yield *
Amount
Yield *
Amount
Yield *
Amount
Yield *
Available-for-sale
(Dollars in thousands)
U.S. federal agencies
$
28
2.72
%
$
-
0.00
%
$
-
0.00
%
$
-
0.00
%
$
28
2.72
%
Mortgage-backed securities
906
1.50
7,551
1.36
-
-
17,880
1.69
26,337
1.59
State and political subdivisions
3,090
1.73
10,378
1.51
4,549
1.69
-
-
18,017
1.59
U.S. treasuries
-
-
3,824
1.05
1,738
1.12
-
-
5,562
1.08
Corporate debt securities
-
-
-
-
4,914
3.36
-
-
4,914
3.36
Total
$
4,024
1.68
%
$
21,753
1.38
%
$
11,201
2.34
%
$
17,880
1.69
%
$
54,858
1.71
%
Percentage of total
7.34
%
39.65
%
20.42
%
32.59
%
100.00
%
*
Yield is on a taxable-equivalent basis using 21% tax rate
Provision for Credit Losses
Credit risk is inherent in the business of making loans. We establish an Allowance for credit losses (“Allowance”) through charges to earnings, which are shown in the statements of
comprehensive income as the provision for credit losses. The provision for credit losses and level of Allowance for each period are dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan
portfolio, delinquencies, management’s assessment of the quality of the loan portfolio, and the valuation of problems and the general economic conditions in our market areas.
For the three months ended September 30, 2025 compared to the three months ended September 30, 2024:
-
The provision for credit losses increased from $0 to $0.7 million; and
-
The allowance as a percentage of total loans increased by 2 basis points to 1.26%.
For the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024:
-
The provision for credit losses increased from $0 to $0.7 million; and
-
The allowance as a percentage of total loans increased by 2 basis points to 1.26%.
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Table of Contents
Noninterest Income
The following tables set forth the major components of our noninterest income for the periods indicated:
For the Three Months Ended
September 30,
2025
2024
$ Increase
% Increase
(Decrease)
(Decrease)
(Dollars in thousands)
Noninterest income:
Mortgage lending income
$
391
$
103
$
288
279.61
%
Loss on sales of available-for-sale debt securities
(10
)
(4
)
(6
)
150.00
%
Service charges on deposit accounts
248
233
15
6.44
%
Other income and fees
1,581
3,345
(1,764
)
-52.74
%
Total noninterest income
$
2,210
$
3,677
$
(1,467
)
-39.90
%
Noninterest income for the three months ended September 30, 2025 was $2.2 m illion compared to $3.7 million for the same
period in 2024, a decrease of $1.5 million, or 39.9%. The decrease was primarily attributable to a decrease in
income related to operations of oil and gas assets, see Note 2 of the financial statements.
For the Nine Months Ended
September 30,
2025
2024
$ Increase
% Increase
(Decrease)
(Decrease)
(Dollars in thousands)
Noninterest income:
Mortgage lending income
$
1,000
$
233
$
767
329.18
%
Loss on sales of available-for-sale debt securities
(10
)
(4
)
(6
)
150.00
%
Service charges on deposit accounts
697
742
(45
)
-6.06
%
Other income and fees
4,976
7,881
(2,905
)
-36.86
%
Total noninterest income
$
6,663
$
8,852
$
(2,189
)
-24.73
%
Noninterest income for the nine months ended September 30, 2025 was $6.7 million compared to $8.9 million for the same
period in 2024, a decrease of $2.2 million, or 24.7%. The decrease was primarily attributable to a decrease in
income related to operations of oil and gas assets, see Note 2 of the financial statements.
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Table of Contents
Noninterest Expense
The following tables set forth the major components of our noninterest expense for the periods indicated:
For the Three Months Ended
September 30,
2025
2024
$ Increase
% Increase
(Decrease)
(Decrease)
(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits
$
5,829
$
5,333
$
496
9.30
%
Furniture and equipment
342
258
84
32.56
%
Occupancy
668
711
(43
)
-6.05
%
Data and item processing
515
498
17
3.41
%
Accounting, marketing, and legal fees
221
218
3
1.38
%
Regulatory assessments
248
261
(13
)
-4.98
%
Advertising and public relations
212
129
83
64.34
%
Travel, lodging and entertainment
112
87
25
28.74
%
Other expense
2,203
1,903
300
15.76
%
Total noninterest expense
$
10,350
$
9,398
$
952
10.13
%
Noninterest expense for the three months ended September 30, 2025 was $10.4 million compared to $9.4 million for the same period in 2024, an increase of $1.0 million, or 10.1%.
For the Nine Months Ended
September 30,
2025
2024
$ Increase
% Increase
(Decrease)
(Decrease)
(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits
$
16,829
$
15,740
$
1,089
6.92
%
Furniture and equipment
954
813
141
17.34
%
Occupancy
1,890
1,985
(95
)
-4.79
%
Data and item processing
1,615
1,437
178
12.39
%
Accounting, marketing, and legal fees
484
582
(98
)
-16.84
%
Regulatory assessments
545
984
(439
)
-44.61
%
Advertising and public relations
629
358
271
75.70
%
Travel, lodging and entertainment
289
270
19
7.04
%
Other expense
5,729
5,507
222
4.03
%
Total noninterest expense
$
28,964
$
27,676
$
1,288
4.65
%
Noninterest expense for the nine months ended September 30, 2025 was $29.0 million compared to $27.7 million for the same
period in 2024, an increase of $ 1.3 million, or 4.7%.
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Table of Contents
Financial Condition
The following discussion of our financial condition compares September 30, 2025 and December 31, 2024.
Total Assets
Total assets increased $151.6 million , or 8.7%, to $1.89 billion as of September 30, 2025, compared to $1.74 billion as of December 31, 2024.
Loan Portfolio
The following table presents the balance and associated percentage of each major category in our loan portfolio as of September 30, 2025 and December 31, 2024:
As of September 30,
As of December 31,
2025
2024
Amount
% of Total
Amount
% of Total
(Dollars in thousands)
Construction & development
$
194,000
12.6
%
$
167,685
12.0
%
1-4 family real estate
119,318
7.8
%
121,047
8.7
%
Commercial real estate - other
557,587
36.3
%
511,304
36.5
%
Total commercial real estate
870,905
56.7
%
800,036
57.2
%
Commercial & industrial
575,530
37.4
%
507,023
36.2
%
Agricultural
76,337
5.0
%
77,922
5.6
%
Consumer
14,504
0.9
%
14,312
1.0
%
Gross loans
1,537,276
100.0
%
1,399,293
100.0
%
Less: unearned income, net
(3,049
)
(1,910
)
Total Loans, net of unearned income
1,534,227
1,397,383
Less: Allowance for credit losses
(19,405
)
(17,918
)
Net loans
$
1,514,822
$
1,379,465
Our loans represent the largest portion of our earning assets. The quality and diversification of the loan portfolio is an important consideration when reviewing our
financial condition. As of September 30, 2025, and December 31, 2024, our gross loans were $1.54 billion and $1.40 billion, respectively.
We have established internal concentration limits in the loan portfolio for Commercial Real Estate (CRE) loans, hospitality loans, energy loans, and construction loans, among others. All loan types are within
our established limits. We use underwriting guidelines to assess each borrower’s historical cash flow to determine debt service capabilities, and we further stress test the customer’s debt service capability under higher interest rate
scenarios as well as other underlying macro-economic factors. Financial and performance covenants are used in commercial lending to allow us to react to a borrower’s deteriorating financial condition, should that occur.
42
Table of Contents
The following tables show the contractual maturities of our gross loans as of the periods below:
As of September 30, 2025
Due after One Year
Due after Five Years
Due in One Year or Less
Through Five Years
Through Fifteen Years
Due after Fifteen Years
Fixed
Adjustable
Fixed
Adjustable
Fixed
Adjustable
Fixed
Adjustable
Total
Rate
Rate
Rate
Rate
Rate
Rate
Rate
Rate
(Dollars in thousands)
Construction & development
$
2,763
$
98,910
$
1,303
$
90,073
$
-
$
406
$
545
$
-
$
194,000
1-4 family real estate
6,832
23,347
33,135
47,066
801
4,696
3,441
-
119,318
Commercial real estate - other
24,853
46,114
68,268
376,121
142
34,652
7,437
-
557,587
Total commercial real estate
34,448
168,371
102,706
513,260
943
39,754
11,423
-
870,905
Commercial & industrial
52,763
296,749
14,627
178,534
45
32,235
577
-
575,530
Agricultural
24,842
7,925
10,621
29,935
-
1,632
1,382
-
76,337
Consumer
3,047
3
4,829
236
757
3,750
1,882
-
14,504
Gross loans
$
115,100
$
473,048
$
132,783
$
721,965
$
1,745
$
77,371
$
15,264
$
-
$
1,537,276
As of December 31, 2024
Due after One Year
Due after Five Years
Due in One Year or Less
Through Five Years
Through Fifteen Years
Due after Fifteen Years
Fixed
Adjustable
Fixed
Adjustable
Fixed
Adjustable
Fixed
Adjustable
Total
Rate
Rate
Rate
Rate
Rate
Rate
Rate
Rate
(Dollars in thousands)
Construction & development
$
9,378
$
76,709
$
2,050
$
78,786
$
-
$
564
$
198
$
-
$
167,685
1-4 family real estate
15,426
20,085
43,558
31,566
964
4,826
4,622
-
121,047
Commercial real estate - other
47,737
61,482
103,484
271,156
153
18,303
8,989
-
511,304
Total commercial real estate
72,541
158,276
149,092
381,508
1,117
23,693
13,809
-
800,036
Commercial & industrial
36,062
263,026
13,639
175,729
8,232
9,738
597
-
507,023
Agricultural
22,768
8,991
16,581
26,677
-
1,054
1,851
-
77,922
Consumer
1,661
4
5,641
170
602
3,570
2,664
-
14,312
Gross loans
$
133,032
$
430,297
$
184,953
$
584,084
$
9,951
$
38,055
$
18,921
$
-
$
1,399,293
Allowance for Credit Losses
The allowance is based on management’s estimate of potential losses inherent in the loan portfolio. In the opinion of management, the allowance is adequate to absorb estimated losses in the portfolio as of each
balance sheet date. While management uses available information to analyze losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Company’s allowance. In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine risk potential in loans is utilized together with the results of
internal credit reviews.
To determine the adequacy of the allowance, the loan portfolio is broken into segments based on loan type. Historical loss experience factors by segment, adjusted for changes in trends and conditions, are used
to determine an indicated allowance for each portfolio segment. These factors are evaluated and updated based on the composition of the specific loan segment. Other considerations include volumes and trends of delinquencies, nonaccrual loans,
levels of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk and the experience and abilities of our lending
personnel.
The allowance was $19.4 million at September 30, 2025, compared to $17.9 million at December 31, 2024.
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The following table provides an analysis of the activity in our allowance for the periods indicated:
For the Nine Months Ended
September 30,
2025
2024
(Dollars in thousands)
Balance at beginning of the period
$
17,918
$
19,691
Provision for credit losses for loans
700
-
Charge-offs:
Construction & development
-
-
1-4 family real estate
-
-
Commercial real estate - other
(197
)
-
Commercial & industrial
-
(2,000
)
Agricultural
-
-
Consumer
(3
)
-
Total charge-offs
(200
)
(2,000
)
Recoveries:
Construction & development
-
-
1-4 family real estate
-
-
Commercial real estate - other
17
-
Commercial & industrial
963
176
Agricultural
4
6
Consumer
3
-
Total recoveries
987
182
Net recoveries (charge-offs)
787
(1,818
)
Balance at end of the period
$
19,405
$
17,873
Net recoveries (charge-offs) to average loans
0.07
%
-0.18
%
While the entire allowance is available to absorb losses from any and all loans, the following table represents management’s allocation of the allowance by loan category, and the percentage of allowance in each
category, for the periods indicated:
As of September 30,
As of December 31,
2025
2024
Amount
Percent
Amount
Percent
(Dollars in thousands)
Construction & development
$
1,203
6.2
%
$
1,223
6.8
%
1-4 family real estate
976
5.0
%
1,313
7.3
%
Commercial real estate - other
7,145
36.8
%
6,992
39.0
%
Commercial & industrial
8,725
45.0
%
6,797
38.0
%
Agricultural
927
4.8
%
1,106
6.2
%
Consumer
429
2.2
%
487
2.7
%
Total
$
19,405
100.0
%
$
17,918
100.0
%
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Nonperforming Assets
Loans are considered delinquent when principal or interest payments are past due 30 days or more. Delinquent loans may remain on accrual status between 30 days and 90 days past due. Loans on which the accrual
of interest has been discontinued are designated as nonaccrual loans. Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management, there is a
reasonable doubt as to collectability of the obligation. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on a nonaccrual loan is
subsequently recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible. Loans are restored to accrual status when loans become well-secured and management believes full collectability of
principal and interest is probable.
Loans are evaluated for expected credit losses over their contractual term, reflecting management’s current estimate. Loans placed on nonaccrual status and loan
modifications granted to borrowers experiencing financial difficulty are considered to have elevated credit risk and are carefully considered within our current expected credit loss methodology. Income from loans placed on nonaccrual status
continues to be recognized to the extent cash is received and when the collectability of the loan’s principal balance is reasonably assured. Depending on a particular loan’s risk characteristics, we estimate expected credit losses using
methods such as present value of expected future cash flows discounted at the loan’s effective interest rate, observable market prices for similar assets if available, or the fair value of collateral less estimated costs to sell for
collateral-dependent loans. A loan is considered collateral-dependent when the expected source of repayment is primarily the liquidation of the collateral. Fair value, where utilized, is determined by independent appraisals, typically on an
annual basis. Between appraisal periods, the estimated fair value may be adjusted based on specific events, such as identified deterioration of collateral quality through our credit risk monitoring, or discussions with the borrower indicating
the appraised value may no longer reflect current market conditions. The estimated credit losses are recognized as an allowance for credit losses, which is a valuation account. Changes in the allowance for credit losses, whether increases or
decreases, are recorded in current period earnings as provision for credit losses.
Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned, or OREO, until sold, and is initially recorded at fair value less costs to sell when
acquired, establishing a new cost basis.
The following table presents information regarding nonperforming assets as of the dates indicated.
As of
September 30,
2025
As of
December 31,
2024
(Dollars in thousands)
Nonaccrual loans (1)
$
5,317
$
7,170
Accruing loans 90 or more days past due
-
-
Total nonperforming assets
$
5,317
$
7,170
Ratio of nonperforming loans to total loans
0.35
%
0.51
%
Ratio of nonaccrual loans to total loans
0.35
%
0.51
%
Ratio of allowance for credit losses to total loans
1.26
%
1.28
%
Ratio of allowance for credit losses to nonaccrual loans
364.96
%
249.90
%
Ratio of nonperforming assets to total assets
0.28
%
0.41
%
(1)
There are no loans modified to borrowers experiencing financial difficulty included in nonaccrual loans as of September 30, 2025 and December 31, 2024, respectively.
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Table of Contents
The following tables present an aging analysis of loans as of the dates indicated.
As of September 30, 2025
Loans 30-59
days past
due
Loans 60-89
days past
due
Loans 90+
days past
due
Loans 90+
days past
due and
accruing
Total past due
loans
Current
Gross loans
(Dollars in thousands)
Construction & development
$
-
$
80
$
-
$
-
$
80
$
193,920
$
194,000
1-4 family real estate
43
-
-
-
43
119,275
119,318
Commercial real estate - other
-
-
-
-
-
557,587
557,587
Commercial & industrial
19
-
3,457
-
3,476
572,054
575,530
Agricultural
240
-
-
-
240
76,097
76,337
Consumer
-
271
-
-
271
14,233
14,504
Total
$
302
$
351
$
3,457
$
-
$
4,110
$
1,533,166
$
1,537,276
As of December 31, 2024
Loans 30-59
days past
due
Loans 60-89
days past
due
Loans 90+
days past
due
Loans 90+
days past
due and
accruing
Total Past
Due Loans
Current
Gross loans
(Dollars in thousands)
Construction & development
$
-
$
-
$
-
$
-
$
-
$
167,685
$
167,685
1-4 family real estate
-
-
-
-
-
121,047
121,047
Commercial real estate - other
103
-
3,426
-
3,529
507,775
511,304
Commercial & industrial
403
5
-
-
408
506,615
507,023
Agricultural
-
-
-
-
-
77,922
77,922
Consumer
97
-
-
-
97
14,215
14,312
Total
$
603
$
5
$
3,426
$
-
$
4,034
$
1,395,259
$
1,399,293
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In addition to the past due and nonaccrual criteria, we also evaluate loans according to our internal risk grading system. Loans are segregated between pass, watch, special mention, and substandard
categories. The definitions of those categories are as follows:
Pass : These loans generally conform to Bank policies, are characterized by policy-conforming advance rates on collateral, and have well-defined repayment sources. In
addition, these credits are extended to borrowers and guarantors with a strong balance sheet and either substantial liquidity or a reliable income history.
Watch : These loans are still considered “Pass” credits; however, various factors such as industry stress, material changes in cash flow or financial conditions, or
deficiencies in loan documentation, or other risk issues determined by the lending officer, Commercial Loan Committee or Credit Quality Committee warrant a heightened sense and frequency of monitoring.
Special mention : These loans have observable weaknesses or evidence of imprudent handling or structural issues. The weaknesses require close attention, and the
remediation of those weaknesses is necessary. No risk of probable loss exists. Credits in this category are expected to quickly migrate to “Watch” or “Substandard” as this is viewed as a transitory loan grade.
Substandard : These loans are not adequately protected by the sound worth and debt service capacity of the borrower, but may be well-secured. The loans have defined
weaknesses relative to cash flow, collateral, financial condition or other factors that might jeopardize repayment of all of the principal and interest on a timely basis. There is the possibility that a future loss will occur if
weaknesses are not remediated.
Outstanding loan balances categorized by internal risk grades as of the periods indicated are summarized as follows:
As of September 30, 2025
Pass
Watch
Special
mention
Substandard
Total
(Dollars in thousands)
Construction & development
$
192,034
$
-
$
1,323
$
643
$
194,000
1-4 family real estate
119,318
-
-
-
119,318
Commercial real estate - other
530,438
18,199
7,449
1,501
557,587
Commercial & industrial
515,022
35,616
19,075
5,817
575,530
Agricultural
72,155
-
4,182
-
76,337
Consumer
14,233
-
-
271
14,504
Total
$
1,443,200
$
53,815
$
32,029
$
8,232
$
1,537,276
As of December 31, 2024
Pass
Watch
Special
mention
Substandard
Total
(Dollars in thousands)
Construction & development
$
165,863
$
-
$
1,259
$
563
$
167,685
1-4 family real estate
121,047
-
-
-
121,047
Commercial real estate - other
498,835
-
7,493
4,976
511,304
Commercial & industrial
493,512
-
3,817
9,694
507,023
Agricultural
74,896
-
3,026
-
77,922
Consumer
14,312
-
-
-
14,312
Total
$
1,368,465
$
-
$
15,595
$
15,233
$
1,399,293
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Table of Contents
Deposits
We gather deposits primarily through our twelve branch locations and online through our website. We offer a variety of deposit products including demand deposit accounts and interest-bearing products, such
as savings accounts and certificates of deposit. We put continued effort into gathering noninterest-bearing demand deposit accounts through loan production cross-selling, customer referrals, marketing efforts and various involvement with
community networks. Some of our interest-bearing deposits are obtained through brokered transactions. We participate in the CDARS and ICS programs, where customer funds are placed into multiple deposit accounts, each in an amount under
the standard FDIC insurance maximum of $250,000, and placed at a network of banks across the United States.
Total deposits as of September 30, 2025 and December 31, 2024 were $1.64 billion and $1.52 billion , respectively.
As of September 30, 2025, and December 31, 2024, brokered deposits were $387.6 million and $336.7 million , respectively.
Uninsured deposits are defined as the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit and amounts in any other uninsured investment or deposit account that are classified as
deposits and are not subject to any federal or state deposit insurance regimes. Total uninsured deposits were $401.8 million and $354.2 million at
September 30, 2025 and December 31, 2024, respectively, as calculated per regulatory guidance. These amounts were approximately 24.6% and 23.4% of deposits at September 30, 2025 and December 31,
2024, respectively.
The following table sets forth deposit balances by certain categories as of the dates indicated and the percentage of each deposit category to total deposits.
As of September 30,
As of December 31,
2025
2024
Amount
Percentage of
Total
Amount
Percentage of
Total
(Dollars in thousands)
Noninterest-bearing demand
$
340,985
20.84
%
$
313,258
20.70
%
Interest-bearing transaction deposits
972,674
59.42
%
889,679
58.70
%
Savings deposits
82,704
5.05
%
73,379
4.80
%
Time deposits (less than $250,000)
140,652
8.59
%
146,814
9.70
%
Time deposits ($250,000 or more)
99,812
6.10
%
92,341
6.10
%
Total interest-bearing deposits
1,295,842
79.16
%
1,202,213
79.30
%
Total deposits
$
1,636,827
100.00
%
$
1,515,471
100.00
%
The following tables set forth the maturity of time deposits as of the dates indicated below:
As of September 30, 2025 Maturity Within:
Three Months
Three to Six
Months
Six to 12
Months
After 12
Months
Total
(Dollars in thousands)
Time deposits (less than $250,000)
$
45,651
$
54,301
$
34,219
$
6,481
$
140,652
Time deposits ($250,000 or more)
25,846
37,085
19,183
17,698
99,812
Total time deposits
$
71,497
$
91,386
$
53,402
$
24,179
$
240,464
As of December 31, 2024 Maturity Within:
Three Months
Three to Six
Months
Six to 12
Months
After 12
Months
Total
(Dollars in thousands)
Time deposits (less than $250,000)
$
62,577
$
38,514
$
41,345
$
4,378
$
146,814
Time deposits ($250,000 or more)
45,667
25,552
18,055
3,067
92,341
Total time deposits
$
108,244
$
64,066
$
59,400
$
7,445
$
239,155
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Table of Contents
Liquidity
Liquidity refers to our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost. We continuously monitor our
liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while
maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.
Our liquidity position is supported by the management of liquid assets and access to alternative sources of funds. Our liquid assets include cash, interest-bearing deposits in correspondent banks and fed funds sold. Other available
sources of liquidity include wholesale deposits and borrowings from correspondent banks and FHLB advances.
Our short-term and long-term liquidity requirements are primarily met through cash flow from operations, redeployment of prepaying and maturing balances in our loan portfolios, and increases in customer deposits. Other alternative
sources of funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis.
As of September 30, 2025, we had no unsecured fed funds lines with correspondent depository institutions, with no corresponding amounts advanced. In addition, based on the values of loans pledged as collateral, we had borrowing
availability with the FHLB of $217.6 million as of September 30, 2025 and $190.9 million as of December 31, 2024, and we had access to approximately $298.4 million in liquidity with the Federal Reserve Bank as of September 30, 2025 and $336.1 million as of December 31, 2024.
Capital Requirements
The Bank is subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for “prompt corrective action” (described below), We
must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies. The capital amounts and classifications are
subject to qualitative judgments by the federal banking regulators about components, risk weightings and other factors. Qualitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and
ratios of CET1 capital, Tier 1 capital, total capital to risk-weighted assets, and Tier 1 capital to average consolidated assets, referred to as the “leverage ratio.”
As of September 30, 2025, the Bank was in compliance with all applicable regulatory requirements and categorized as “well-capitalized” under the prompt corrective action frame work.
There have been no conditions or events since September 30, 2025 that management believes would change this classification. The table below presents our applicable capital requirements, as well as our capital ratios as of September 30,
2025 and December 31, 2024. The Company exceeded all regulatory capital requirements and the Bank was considered to be “well-capitalized” as of the dates reflected in the tables below.
Basel III Capital Rules
Under the Basel III Capital Rules, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a
banking organization must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. As of September 30, 2025, the Company and the Bank met all capital adequacy requirements under the
Basel III Capital Rules.
49
Table of Contents
Actual
With Capital
Conservation Buffer
Minimum to be "Well-
Capitalized" Under Prompt
Corrective Action
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
As of September 30, 2025
Total capital (to risk-weighted assets)
Company
$
252,632
15.43
%
$
171,870
10.50
%
N/A
N/A
Bank
252,591
15.44
%
171,763
10.50
%
$
163,584
10.00
%
Tier 1 capital (to risk-weighted assets)
Company
232,763
14.22
%
139,133
8.50
%
N/A
N/A
Bank
232,723
14.23
%
139,047
8.50
%
130,867
8.00
%
CET 1 capital (to risk-weighted assets)
Company
232,763
14.22
%
114,580
7.00
%
N/A
N/A
Bank
232,723
14.23
%
114,509
7.00
%
106,330
6.50
%
Tier 1 capital (to average assets)
Company
232,763
12.71
%
N/A
N/A
N/A
N/A
Bank
232,723
12.71
%
N/A
N/A
91,555
5.00
%
Actual
With Capital Conservation Buffer
Minimum to be "Well-
Capitalized" Under Prompt
Corrective Action
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
As of December 31, 2024
Total capital (to risk-weighted assets)
Company
$
227,229
15.21
%
$
156,830
10.50
%
N/A
N/A
Bank
227,189
15.22
%
156,723
10.50
%
$
149,260
10.00
%
Tier 1 capital (to risk-weighted assets)
Company
208,847
13.98
%
126,957
8.50
%
N/A
N/A
Bank
208,807
13.99
%
126,871
8.50
%
119,408
8.00
%
CET 1 capital (to risk-weighted assets)
Company
208,847
13.98
%
104,553
7.00
%
N/A
N/A
Bank
208,807
13.99
%
104,482
7.00
%
97,019
6.50
%
Tier 1 capital (to average assets)
Company
208,847
12.19
%
N/A
N/A
N/A
N/A
Bank
208,807
12.18
%
N/A
N/A
85,698
5.00
%
Shareholders’ equity provides a source of permanent funding, allows for future growth and provides a cushion to withstand unforeseen adverse developments. Total shareholders’ equity increased $28.5 million as of September 30, 2025 to $241.7 million, compared to $213.2 million as of December 31, 2024.
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Table of Contents
Contractual Obligations
The following tables contain supplemental information regarding our total contractual obligations as of September 30, 2025, and December 31, 2024:
Payments Due as of September 30, 2025
Within One
Year
One to Three Years
Three to Five Years
After Five
Years
Total
(Dollars in thousands)
Deposits without a stated maturity
$
1,396,363
$
-
$
-
$
-
$
1,396,363
Time deposits
216,285
23,800
379
-
240,464
Operating lease commitments
204
1,120
530
474
2,328
Total contractual obligations
$
1,612,852
$
24,920
$
909
$
474
$
1,639,155
Payments Due as of December 31, 2024
Within One
Year
One to Three Years
Three to Five Years
After Five
Years
Total
(Dollars in thousands)
Deposits without a stated maturity
$
1,276,316
$
-
$
-
$
-
$
1,276,316
Time deposits
231,710
6,746
699
-
239,155
Operating lease commitments
646
516
236
476
1,874
Total contractual obligations
$
1,508,672
$
7,262
$
935
$
476
$
1,517,345
We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels. We expect to maintain adequate cash levels through profitability, loan
repayment and maturity activity and continued deposit gathering activities. We have in place various borrowing mechanisms for both short-term and long-term liquidity needs.
Off-Balance Sheet Arrangements
We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend
credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. The contractual or notional amounts of
those instruments reflect the extent of involvement we have in particular classes of financial instruments. To control this credit risk, the Company uses the same underwriting standards as it uses for loans recorded on the balance sheet.
Loan commitments are agreements to lend to a customer, as long as there is no violation of any condition established in the contract. Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of the customer to a third party. They are intended to be disbursed, subject to certain conditions, upon request of the borrower.
The following table summarizes commitments as of the dates presented.
September 30,
2025
December 31,
2024
(Dollars in thousands)
Commitments to extend credit
$
311,383
$
272,261
Standby letters of credit
13,507
11,333
Total
$
324,890
$
283,594
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Table of Contents
Critical Accounting Policies and Estimates
Our accounting and reporting policies conform to GAAP and conform to general practices within the industry in which we operate. To prepare financial statements in conformity with GAAP, management makes
estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are
based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statement. In particular,
management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.
The following is a discussion of the critical accounting policies and significant estimates that we believe require us to make the most complex or subjective decisions or assessments.
Allowance for Credit Losses
The allowance is based on management’s estimate of probable losses inherent in the loan portfolio. In the opinion of management, the allowance is adequate to absorb estimated losses in the portfolio as of
each balance sheet date. While management uses available information to analyze losses on loans, future additions to the allowance may be necessary based on changes in economic conditions and changes in the composition of the loan
portfolio. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance. In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine
risk potential in loans is utilized together with the results of internal credit reviews.
To determine the adequacy of the allowance, the loan portfolio is broken into pools based on loan type and risk characteristics. Historical loss experience factors by pool, adjusted for changes in trends
and conditions, are used to determine an indicated allowance for each portfolio pool. These factors are evaluated and updated based on the composition of the specific loan pool. Other considerations include volumes and trends of
delinquencies, nonaccrual loans, levels of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk and the
experience and abilities of our lending personnel. In addition to the pool evaluations, classified loans with a balance of $250,000 or more are individually evaluated based on facts and circumstances of the loan to determine if a specific
allowance amount may be necessary. Specific allowances may also be established for loans whose outstanding balances are below the $250,000 threshold when it is determined that the risk associated with the loan differs significantly from
the risk factor amounts established for its loan pool.
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Table of Contents
Goodwill and Intangibles
Intangible assets totaled $784,000 and goodwill, net of accumulated amortization, totaled $11.2 million as of September 30, 2025, compared to intangible assets of $878,000 and goodwill
of $8.5 million as of December 31, 2024.
Goodwill resulting from a business combination represents the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities
assumed as of the acquisition date. Goodwill is tested annually for impairment or more frequently if other impairment indicators are present. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment
is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the accompanying consolidated financial statements.
Other intangible assets consist of core deposit intangible assets and are amortized on a straight-line basis based on an estimated useful life of 10 years. Such assets are periodically
evaluated as to the recoverability of their carrying values.
Income Taxes
We file a consolidated income tax return. Deferred taxes are recognized under the balance sheet method based upon the future tax consequences of temporary differences between the carrying amounts and tax
basis of assets and liabilities, using the tax rates expected to apply to taxable income in the periods when the related temporary differences are expected to be realized.
The amount of accrued current and deferred income taxes is based on estimates of taxes due or receivable from taxing authorities either currently or in the future. Changes in these accruals are reported as
tax expense, and involve estimates of the various components included in determining taxable income, tax credits, other taxes and temporary differences. Changes periodically occur in the estimates due to changes in tax rates, tax laws and
regulations and implementation of new tax planning strategies. The process of determining the accruals for income taxes necessarily involves the exercise of considerable judgment and consideration of numerous subjective factors.
Management performs an analysis of our tax positions annually and believes it is more likely than not that all of its tax positions will be utilized in future years.
The Company’s effective tax rate was 23.6% for the third quarter of 2025, which was consistent with the rate of 24.2%
for the same period in 2024. Our effective tax rate differs from the U.S. federal statutory rate of 21% primarily due to the effect of state income taxes, tax-exempt income earned on certain loans and investments, and nondeductible
expenses.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement, defines fair value as the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market
participants at the measurement date. The degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters. For
financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not available,
management judgment is necessary to estimate fair value. In addition, changes in market conditions may reduce the availability of quoted prices or the observable date. Debt securities that are being held for indefinite periods of time and
are not intended to sell, are classified as available for sale and are stated at estimated fair value. Unrealized gains or losses on debt securities available for sale are reported as a component of stockholders’ equity and comprehensive
income, net of income tax.
The Company reviews its portfolio of debt securities in an unrealized loss position at least quarterly. The Company first assesses whether it intends to sell, or it is more-likely-than-not that it will be
required to sell, the securities before recovery of the amortized cost basis. If either of these criteria is met, the securities amortized cost basis is written down to fair value as a current period expense. If either of the above
criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making this assessment, the Company considers, among other things, the period of time the security has been
in an unrealized loss position, and performance of any underlying collateral and adverse conditions specifically related to the security.
The estimates of fair values of debt securities and other financial instruments are based on a variety of factors. In some cases, fair values represent quoted market prices for identical or comparable
instruments. In other cases, fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk. Accordingly, the fair values
may not represent actual values of the financial instruments that could have been realized as of year-end or that will be realized in the future.
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Table of Contents
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